Monetary policy to remain loose despite vaccines

This month’s positive vaccine news has dramatically improved the near term global economic outlook, but it doesn’t fundamentally alter our dovish view on EM monetary policy. Many EMs have only small (or non-existent) purchase agreements and face distributional hurdles, so near-term recoveries will still be bumpy and uneven as COVID-19 containment measures remain in place. If anything, the likely further improvement in risk appetite strengthens our view for more rate cuts in Mexico, India, Russia and Indonesia. Even in Chile and Central & Eastern Europe, whose economies could benefit most from the roll-out of vaccines, all the signs point to central banks staying focused on keeping policy loose for a prolonged period. Overall, our forecasts remain more dovish than those priced into markets.